Good day, and thank you for standing by. Welcome to the Q2 2024 Universal Health Services Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Steve Filton, Executive Vice President and CFO. Please go ahead.

Good morning. Marc Miller is also joining us this morning. We welcome you to this review of Universal Health Services results for the second quarter ended June 30, 2024. During the conference call, we'll be using words such as believes, expects, anticipates, estimates and similar words that represent forecasts, projections and forward-looking statements. For anyone not familiar with the risks and uncertainties inherent in these forward-looking statements, I recommend a careful reading of the section on Risk Factors and forward-looking statements in our Form 10-K for the year ended December 31, 2023, and our Form 10-Q for the quarter ended March 31, 2024. We'd like to highlight just a couple of developments and business trends before opening the call up to questions. As discussed in our press release last night, the company reported net income attributable to UHS per diluted share of $4.26 for the second quarter of 2024. After adjusting for the impact of the items reflected on the supplemental schedule, as included with the press release, our adjusted net income attributable to UHS per diluted share was $4.31 for the quarter ended June 30, 2024. Our acute hospitals experienced a moderation of the demand for their services in the second quarter with adjusted admissions increasing 3.4% year-over-year and surgical growth flattening out. Overall, revenue growth was still a solid 6.6%. Meanwhile, expenses were well controlled. Specifically, the amount of premium pay in the second quarter was $61 million, reflecting a 15% to 20% decline from the prior year quarter. On a same facility basis, EBITDA at our acute care hospitals increased 37% during the second quarter of 2024 as compared to the comparable prior year quarter. And the increase was 20% if you exclude the impact of the incremental Medicaid supplemental payments in Nevada. During the second quarter, same facility revenues in our behavioral health hospitals increased by 11%, primarily driven by a 9.3% increase in revenue per adjusted patient day. Even after adjusting for Medicaid supplemental payments not included in our original 2024 guidance, same facility revenues increased by 7.2% and same facility EBITDA for our behavioral health hospitals increased 13% in the second quarter as compared to the comparable prior year period. Our cash generated from operating activities increased by $422 million to $1.1 billion during the first six months of 2024 and as compared to $654 million during the same period in 2023. In the first half of 2024, we spent $450 million on capital expenditures and acquired 1.1 million of our own shares at a total cost of approximately $195 million. Since 2019, we have repurchased approximately 30% of the company's outstanding shares. As of June 30, 2024, we had $1 billion of aggregate available borrowing capacity pursuant to our $1.2 billion revolving credit facility. In our acute care segment, we continue to develop additional inpatient and ambulatory care capacity. We currently have 27 operational freestanding emergency departments as well as 12 more, which have been approved and are in various stages of development. Also, construction continues on our de novo acute care hospitals consisting of the 150-bed West Henderson Hospital in Las Vegas, Nevada, which is expected to open late this year. The 136 bed Cedar Hill Regional Medical Center in Washington, D.C., which is expected to open in the spring of 2025, and the 150-bed Alan B. Miller Medical Center in Palm Beach Gardens, Florida, which is expected to open in the spring of 2026. In our behavioral health segment, we recently opened the 128-bed River Vista Behavioral Hospital in Madera, California, and we are developing the 96 beds Southridge Behavioral Hospital in West Michigan, a joint venture with Trinity Health Michigan, which is expected to open later this year. I'll now turn the call over to Marc Miller, President and CEO, for closing comments.

Thanks, Steve. We're pleased with our second quarter results as both our business segments continued to make operational improvements. As we anticipated, acute care volumes have moderated somewhat and are gradually beginning to resemble the patterns we experienced prior to the pandemic. The increase in operating income in comparison to last year's second quarter for acute care hospitals is a further step towards a more extended margin recovery, which we hope to sustain for the next several periods. In our acute segment, physician expense, which is a significant headwind in 2023, has stabilized at approximately 7.5% of revenues. Based on the generally favorable operating trends in the first half of the year, we are increasing the midpoint of our 2024 EPS guidance by 17% to $15.80 per diluted share from $13.50 per diluted share previously. New supplemental programs being developed in Tennessee and Washington D.C., which are not yet fully approved, are not included in our revised guidance. Lastly, as announced in yesterday's earnings release, our Board of Directors has authorized a $1 billion increase to our stock repurchase program, thereby increasing the current aggregate repurchase authorization to $1.228 billion. We're happy to answer questions at this time.

One moment for our first question which comes from Ann Hynes of Mizuho Securities. Your line is open.

Great. Thanks. I just want to focus my question on the supplemental payments. I'm just trying to figure out what inning you are in both the acute care and behavioral for maybe new programs. Like so you mentioned D.C. that sounds like it might be a new program in acute care. And on the behavioral side going forward that would be great. Thanks.

Yes, Ann, we have mentioned previously that while we recognize that individual states are considering new programs or expanding existing ones, we typically refrain from discussing them until a formal program is submitted to CMS and pending approvals from them. Both the Tennessee and Washington D.C. programs fall into this category. Tennessee is a state where we exclusively operate in behavioral business, while Washington D.C. encompasses both acute and behavioral business, although the Medicaid supplemental program would mainly benefit the acute business. We have been informed that the expectation from the state and the district is for these programs to likely receive approval either later this year or early next year. Both programs would be retroactive, with Tennessee likely being retroactive to July 2024 and D.C. to October 2024 this year. However, none of this is guaranteed and is subject to CMS approval. These are the two additional programs we would disclose, but we are also aware of other states considering expansions or new programs.

Great. And just one follow-up. I know you mentioned the potential benefit for Tennessee, but can you share what you think it would be for D.C.? Thanks.

Yes. So, we've disclosed in our 10-Q that we think the potential benefit of our prior 10-Q, the potential benefit in Tennessee would be between $42 million and $56 million annually. The potential benefit in Washington D.C. is probably in the $80 million to $90 million range annually.

Great. Thank you.

And one moment for our next question. And our next question will be coming from Stephen Baxter of Wells Fargo. Your line is open, Stephen.

Hi. Thanks. I was hoping you could elaborate a little bit on behavioral volume performance in the quarter. I think you had expectations maybe the last earnings call just going to improve a little bit in the second quarter. So just wondering if you could talk about some of the drivers of performance in the quarter. And then also, how you're thinking about behavioral demand growth in the back end of the year. Thank you.

Yes. The dynamics surrounding behavioral volumes have remained relatively consistent. Your description is accurate. Behavioral patient days on an adjusted same-store basis increased by about 2% in Q1, and we anticipate similar or slightly better performance in Q2. The challenges we face are largely those we've been discussing for some time. While we have made significant progress in filling labor vacancies nationwide, we still encounter difficulties in specific markets and regions with certain positions, such as nurses, therapists, counselors, and mental health technicians, which can impact our capacity to admit patients. In recent quarters, we've talked about how Medicaid disenrollments, particularly in Southern states like Texas, Mississippi, Louisiana, and Arkansas, have affected our business as people have been disenrolled from Medicaid and it takes time for them to get reenrolled or to enroll in a commercial exchange program. When they enter a commercial exchange program, they often face high co-pays and deductibles, making it challenging to meet financial requirements at behavioral hospitals. Additionally, we have a few behavioral facilities that encountered specific issues in 2023. While all have shown improvement, it's happening at a slower pace than we initially expected. Ultimately, we still believe that our 3% patient day growth target included in our original 2024 guidance is achievable, likely not for the entire year, but we believe that by the end of 2024, we should be growing at that rate, and we see that as a sustainable growth rate going forward.

And one moment for our next question. And our next question will be coming from Ben Hendrix of RBC Capital Markets. Your line is open.

Thank you very much. Just wanted to see if you could elaborate a little bit on the moderation in acute demand and your surgeries flattening out with trending towards pre-COVID levels. Any trends you can call specifically in specific categories and any payer mix implications there, and how you're seeing that develop? Thank you.

Yeah. I mean, so one comment that I'd make about the 3.4% adjusted admission growth in acute care is that that comparable number in the second quarter of last year was 7.7% and surgical growth in the second quarter of last year was in the 5% to 6% range. So those were both very difficult comparisons. I think we had a view that 3.4% adjusted admission growth a relatively flat. Surgical growth was relatively close to our expectations given the very difficult comparison. We've been talking I think for some time about the expectation that acute care volumes, both overall admissions and surgical growth would return to pre-pandemic patterns. I don't know that that's absolutely where we are right today. But certainly I think we've been preparing for that. And I think a lot of the cost management that you saw during the quarter was an expectation and preparing for that so that as we return to some of those pre-pandemic levels of revenue and volume growth, we could generate increased EBITDA and margin expansion and remain on that trajectory for at least several more periods.

Thank you.

One moment for our next question. And our next question will be coming from A.J. Rice of UBS. Your line is open.

Hi, everybody. Maybe just first question and then I have a follow-up. First question on the updated guidance, I know you didn't raise the full year guidance after the first quarter and there was some outperformance, and then you've had some outperformance in the second quarter. And then there's also the supplemental payments maybe that weren't in the original guidance. Can you just parse out how much is just capturing year-to-date trends? How much is an adjustment for supplemental payment information? And then have you made any adjustment to your second half expectations in this updated guidance?

Yeah. So A.J., from a high-level perspective, the approach that we took to the revised guidance was, obviously, to increase the guidance by the amount of the first half beat, which was substantial, to include in the revised guidance for the back half of the year. Any supplemental programs and payments that we knew would continue and be present in the second half. We did not, as Marc indicated in his comments, include anything for Tennessee or Washington D.C. And then we included some of the cost management improvements that we've made, which we believe are certainly sustainable. But for the most part particularly from I think a revenue and a volume perspective, just generally retained our original guidance for the second half of the year.

There's been a lot of discussion this quarter about the impact of the two-midnight rule and Medicaid redeterminations. Can you comment on what you're observing in these areas? I understand that the two-midnight rule wouldn't affect the behavioral business, but the redeterminations may have influenced both sides. What are your updated thoughts on these two topics?

We have previously discussed the two-midnight rule and acknowledge that our perspective may differ from that of some peers. However, we have not been able to confirm any real benefits from the two-midnight rule change. We haven't observed any significant changes in metrics such as denial rates or patient status changes, nor have we received reports from our staff that indicate a substantial shift in payer behavior. Although some peers have claimed otherwise, we cannot identify any major impact from the two-midnight rule. Regarding Medicaid redeterminations, we have noticed an increase in commercial exchange patients on the acute side, though likely not as significant as reported by others. Previously, commercial exchange patients made up around 4% of our overall adjusted admissions before the PAT ended, and that number has now increased to about 5%. Meanwhile, some peers may have seen those figures rise to 6% or 7%. On the behavioral side, I mentioned earlier that Medicaid redeterminations have impacted our adolescent population, as we have observed some weakness in that segment over the last two to three quarters. The process for adolescents to reenroll in Medicaid or join a commercial exchange program has been slow, and if they do enroll in a commercial exchange program, they often face high co-pays and deductibles. Overall, it seems that Medicaid redeterminations have had a more significant negative effect on our behavioral business, while the shift to commercial exchanges on the acute side has been a slight positive.

Okay. Thanks a lot.

One moment for our next question. And our next question will be coming from Justin Lake of Wolfe Research. Your line is open.

Thanks. Good morning. Steve, first on the guidance, in terms of just kind of isolating that DPP bucket, I think you started the year at about $810 million in the 10-K that you expected to get this year. You updated it to $860 million, with the ones with the 10-Q. Just curious, what that number is right now that you expect to get this year. So let's just do that in my first question. Then, I've got one for Marc. Thanks.

Yes. So we're still working on that disclosure, which we'll have in our 10-K in eight or 10 days. But I think there'll be a significant step up from the $860 million, obviously, including the Washington I know numbers that we included in the press release, et cetera. But there'll be a more precise picture that we file our Q in a week or so.

Okay. Do you have a round number you could share with us? Do you think it goes much higher than $900 million? Or if I add those two numbers together?

Yes, I think it will go into the low to mid-900s.

Okay. So, if we look at your guidance raise of $215 million, you started the year at around 810. If it goes to low to mid-900s, is it maybe fair to say that, maybe half give or take of that guidance raise is coming from these supplemental payments? That a reasonable way to think about the rest?

I think that's fair.

Okay. And then Marc, you talked about the improvement in the hospital business in terms of the margins. Curious, if there's still a potential way to go to get back to pre-COVID levels. What do you think a reasonable target is when you sit down with your hospital operators? And do you have a trajectory or a plan, what you kind of timeline is probably the best way to put it in terms of when you expect to get there? Maybe you could share a couple of the steps you expect to take to get that. Thanks.

Yes. I mean, we have a lot of plans, and there's a lot of discussions on how we're going to continue to incrementally improve. I'm not going to give you a number or a time period right now. But every market is a little bit different, obviously. We've been very pleased with the work that the operators have done especially in the last 12 months. In addressing not only the volume issues but really getting a better handle on expenses. And I think if we just continue with that trajectory, we'll get to where we need to be fairly soon, but we still have a little ways to go.

Great. Thanks.

And one moment for our next question. And our next question will be coming from Jason Cassorla of Citi. Your line is open, Jason.

Great. Thanks. Good morning. Maybe just to ask on the acute pricing and mix in the quarter up 3.5% or so, but kind of normalizing for the supplemental payment dollars this year maybe only up slightly year-over-year. Is that just simply a function of that lower acuity volume continuing to return? I know you made comments around surgical volume dynamics in the quarter? Or just maybe anything you can give on acuity and payer mix trends within a Q kind of outside of the supplemental payment programs would be helpful.

Yes. I think it's a variety of things, Jason. Again, I think we had a pretty difficult comparison. We were comparing to something close to 10%, revenue growth last quarter high surgical and last year's quarter, rather high surgical growth, et cetera. I think we're seeing some settling down, some exhaustion of some of those postponed and deferred procedures that have been postponing deferred during the pandemic. I think that even exclusive of the supplemental payments, our expectation in the acute business is, we'll get to as we have historically a same-store revenue growth sort of trajectory of 5% to 6% split pretty evenly between price and volume. And again, I think with our progress that we've made as both Marc and I have alluded to on the cost management side, that should allow us continued EBITDA growth and margin expansion until we get either completely back to or something close to pre-pandemic margin levels in that segment.

Okay. Great. Thanks. And then maybe just a follow-up. With the $1 billion increase to the share repo program, I know you accelerated a little bit in terms of share repo activity in the quarter maybe with the Illinois lawsuit kind of dynamics going on. But with the increase there in the repo program, is the expectation that you're still aiming to spend around $500 million to $600 million on share repo for this year? Or how should we think about the share repurchase dynamics? Thanks.

Yes. So, I think your suggestion is largely on point. Our original guidance suggested that we would spend the bulk of our free cash flow, which would be $500 million or $600 million on share repurchase. And I think that is still our intent. And I think frankly the main point of including that announcement in this quarter's release was to just reinforce that idea. We believe we're still on track and obviously we needed the reauthorization to be able to accomplish that.

Great. Thank you.

Our next question will be coming from Sarah James of Cantor Fitzgerald. Your line is open.

Thank you. I was hoping you could talk a little bit about the embedded adjusted admissions growth baked into your guidance for the second half. Are you assuming that first half levels stay flat or decelerate? And could you talk a little bit about what the drivers are for that assumption?

Yes. So, our volume assumptions in the back half of the year are not terribly different than our original guidance. On the acute side, I think it's adjusted admission growth in the 3% to 4% range just sort of continuing how we're exiting in the second quarter. I think on the behavioral side, practically, it will be a tall order to get to 3% patient day growth for the full year. But I do think that we still believe that we'll get to that 3% by the end of the year and that that will be a sustainable level or a level of growth that we can sustain for the foreseeable future after that.

Got it. And on the behavioral side, do you think about getting to that 3% as mostly capacity driven? And do you have any updates on how your hiring practices are going? Thanks.

Yes, I mean I think it's a combination of things. I ticked off I think the things that have been progressing a little more slowly than we expected. I think we believe that will accelerate. We believe we'll continue to have more success in hiring particularly in pockets that have been somewhat troublesome. I think that the impact of the Medicaid disenrollment, which I do think has weighed down our volume in the last three or four quarters, will get better as more of these people get either reenrolled in Medicaid or in commercial exchange products and the copays and deductibles. And I believe the progress on the handful of residential facilities that have been a drag, which have been progressing but at a somewhat slower rate than we expect will continue, and all that will help and allow us to get back to the 3%, which I think again was our original plan; it's just happening a little bit more slowly than we had originally anticipated.

Thank you.

And our next question will be coming from Andrew Mok of Barclays. Andrew, your line is open.

Hi, good morning. Just wanted to follow up on the Medicaid supplemental payment programs. First, can you give us a sense where these programs stand relative to average commercial rates? And second, how does the higher Medicaid reimbursement change the relative attractiveness of patients in that payer class? Is this a category that you would lean into from a referral and service line perspective? Thanks.

Yes. And I think at least one of my acute care company peers made this point that even though there have been these substantial increases in Medicaid supplemental payments around the country that for the most part, and I think this is particularly true on the acute side, our Medicaid reimbursement remains well below commercial rates, mostly well below Medicare rates. And quite frankly, in most cases still below our cost. So, we've made the point before and I'll reinforce it again because it's an important one that these Medicaid increases are really intended to, I think, make up for the inadequate reimbursement of the last several years, particularly the cost pressures that accelerated during the pandemic just broadly inflation pressures, but also the particular wage pressures that were exacerbated during the pandemic. I think on the behavioral side, at least in some of the states the Medicaid supplemental payments do in some cases approach Medicare reimbursement; in some cases, they probably fall between Medicare and commercial. I think in those states and in those facilities, it does sort of change our approach and I think encourages us to focus on those referral sources and those community resources that tend to produce Medicaid patients. And I think we, it does inform our approach in those markets. And we are, I think the phrase you used was leaning into that. I think on the acute side the vast majority of our Medicaid business comes to our emergency room. So, there's not a whole lot of proactive actions that we take to seek that business out we get the business we get and we're just being reimbursed for that a more adequate rate. But yes, on the behavioral side, I do think that we're in those spaces where these programs increase the Medicaid reimbursement to a level that makes it more attractive. We are using that and leaning into that business and trying to work with referral sources to get more of it.

Great. Thank you.

And one moment for our next question. And our next question will be coming from Pito Chickering of Deutsche Bank. Your line is open, Pito.

Hey. Good morning guys. So, on the acute labor side, can you talk about where turnover is today where hiring is and how to think about those in the back half of the year as well as contract labor? And also, as length of stay comes down due to better staffing, how does length of stay reductions help your EBITDA growth?

Yeah. So as far as acute care turnover, Pito, I think that we're down into the low-and-mid-20s, which is kind of where we were in sort of the pre-pandemic period. Obviously, we still view that turnover rate as high. But to be fair, it's just the nature of the business. The hospital and acute care industry has had turnover rates in the high-20s and low-30s nationally for a long time. And while we view those as still very inefficient and not necessarily ideal and we continue to work to lower them, part of that is it's just the nature of the business. But obviously, as I indicated in my prepared comments, our ability to reduce premium pay, which has been reduced almost probably by two-thirds from its height at the very height of the pandemic indicates more success in hiring and filling these permanent positions. I think you also see it in just our deceleration or a reduction in the rate of acceleration in wage inflation in the acute business, the reduction in incentive payments, recruitment incentive payments et cetera, all indicate, I think, a settling out of the labor supply demand dynamic and just greater success on our part in filling our open vacancies. As far as the length of stay dynamic, because the vast majority of our payments are made on a per discharge basis, the lower our length of stay, the more efficient we are in being able to treat patients and fully treat them and discharge them to the appropriate setting whether that's home or to some sort of subacute facility. To the degree that we reduce length of stay, we're really reducing our cost per discharge or cost per admission. And then again, I think that we've lowered our length of stay dramatically from the height of the pandemic, but even continue to do so incrementally. And again, I think that's partly reflected in our very successful cost management and cost reduction initiatives that you can see on our income statement.

Okay. There's been some negative press recently including the Senate Finance Committee on results of care. Are you seeing that impact to your referrals at all?

Yeah. Honestly, Pito, we really have seen virtually no impact from the Senate hearing and report. I think the greatest impact we would expect perhaps to have seen would be from referral sources. But I think what we kind of believe is the lesson from this is that referral sources understand the business very well. They understand this is a very difficult patient population. They understand that our hospitals, I think, do overall a very admirable job. And I think the outcomes and the patient satisfaction results suggest that patients are generally satisfied and highly satisfied with their care in these facilities. And I think referral sources recognize that. So no we've really seen no impact on our volumes no impact from referral sources not necessarily any additional incremental regulatory oversight. So we're pleased with that.

Perfect. Great. Thanks so much, guys.

And one moment for our next question. And our next question will be coming from Michael Ha of Baird. Your line is open.

Thank you. So on behavioral volumes still yet to slowly rebound pricing remains powerful. I was wondering if you could help us break out roughly how much of the volume headwind is Medicaid redeterminations versus labor-related constraints? Is it 50-50 maybe more of redetermination related? And would it be fair to say that redetermination impact tails off into the back half of this year that it creates a positive backdrop? And against easier second half volume comps that should help the bounce back naturally in behavioral volumes. And then, if you could discuss the source of behavioral pricing strength I think you said 7.2% as the supplemental payments. So if you could just test some of the dynamics there is it what's happening in par pricing that would be helpful. Thank you.

I want to highlight that the difference in our behavioral volumes shows a 1.4% growth in patient days this quarter, compared to our expectation of around 2% or slightly more based on the first quarter. This isn't a significant shortfall, totaling around 60 to 80 basis points, making it challenging to accurately differentiate between the various factors I mentioned, including staffing issues, Medicaid redeterminations, and a few residential facilities. Overall, as you've indicated, we expect the impact from redeterminations to improve in the latter half of the year, alongside improvements in staffing and residential facilities, which should help us achieve our 3% target.

And one moment for our next question. Our next question will be coming from Kevin Fischbeck of Bank of America. Your line is open.

Okay. Just a follow-on that comment there about the site volume improvement. I guess two questions. First one is, is there any sign, I guess, maybe outside of the Medicaid population that demand in any way shape or form is being impacted? Or is this really just about kind of capacity and then redeterminations? And then second, when you think about that labor dynamic to get back to 3% by the end of the year and to consistently be growing 3%. I mean, you're going to have to be adding staff at that pace. Are you currently adding staff at that pace generally that would support that? It sounds like you're not quite there yet. So just trying to understand what you're doing between now and year-end that should be getting you to kind of sustainably add that type of capacity? Thanks.

Yes, Kevin. I believe part of the reason we're confident that behavioral volumes should increase to more historically normal levels is that we think the underlying demand is strong, and we measure this in several ways. From a macro perspective, there are many sources of behavioral illness and the need for treatment across various diagnoses, including opioid issues and others. We believe that demand for behavioral treatment is growing overall. The key question is how we can meet that demand, which relates to the labor dynamics. We are continuing to make net hires, having had positive net hires over the last 18 to 24 months. Although the pace has been slower than we anticipated, we are still adding to our team. Recently, we’ve focused on the higher turnover rates in the behavioral sector compared to acute care, which leads to inefficiencies. Despite hiring many individuals, they tend to leave. This is not solely a UHS issue; it’s a challenge across the industry. However, we are committed to reducing that turnover rate through mentorship programs, educational opportunities, and career development initiatives, providing employees with good reasons to stay with our organization and facilities. I believe we can decrease our turnover rate, which is a realistic goal. This will help us meet some of the significant behavioral demand that we've been unable to satisfy as much as we would like in recent times.

All right. Great. Is there an actual physical capacity dynamic too that you need to be adding beds? Or is there enough bed capacity it's really just the labor that's the constraint?

Yes. So I think it's sort of a catch 22. I think we dramatically reduced the pace at which we were adding beds during the pandemic because we had a view that, well, what's the point of adding new beds if we can't staff the beds that we already have? I think as we make more and more progress, and again, this is an individual facility individual market kind of calculation in each phase, but as we increase our ability to fill those vacancies, et cetera, and sort of see a path and a ramp to being able to fill those vacancies, I think, we're going to be more willing to resume the pace of bed additions that we were running at before the pandemic.

Thanks.

And one moment for our next question. And our next question will be coming from Whit Mayo of Leerink Partners. Whit, your line is open.

Hey, Steve. I have one more labor dynamic question. What's interesting is this is the fourth consecutive quarter where your SWB per patient day has moderated. And I'm just really trying to square this against the comments on the challenges in filling positions. You said you're hiring maybe a little bit slower than you thought, but it's not pressuring the salary line at all. And I guess, I would have thought intuitively the opposite would happen, but maybe there's something optical with the mix of RTC versus acute or something. How do I make sense of this?

During the pandemic, many individuals transitioned from subacute industries, including behavioral health, nursing homes, skilled nursing facilities, and home health, to acute care settings where they could significantly increase their salaries. There has always been a disparity, with compensation in acute care typically being higher than in subacute care, but this gap became much larger during the pandemic. While it has since narrowed, we faced challenges when a behavioral nurse indicated she was leaving to earn three times her salary in acute care; simply increasing her pay by $2 an hour would not have changed her decision. This explains the lack of substantial pressure on our behavioral rates during the pandemic and the moderation we are currently seeing in salaries and wages per patient day. Our approach to this issue does not solely revolve around higher premium payments and incentives, which we did implement during the pandemic and in certain markets as necessary. Instead, our primary focus is on ensuring that working in a behavioral setting feels rewarding, offers career opportunities, and conveys a sense of value to employees. Although we will consider higher compensation where it's viable, I believe that in most instances, increasing pay alone won't resolve the situation. We will allocate additional resources where we see it is warranted.

Okay. And my follow-up, I haven't heard you talk about the health plan business in some time. Wondering how that's performing versus expectations? And how you guys think of that as a core business for UHS? Or do you think differently at all about it? Thanks.

I mean we've talked about the health plans from time to time. I think like any provider-sponsored health plan and this is really an acute care dynamic. We only operate the health plan in markets in which we have acute care hospitals. And it is a way for us to create narrow networks in which our hospitals participate. It's a way for us to create further alignment with Medicare physicians particularly in plans that are focused on Medicare Advantage patients. And we think ultimately even though the plan operates largely at a breakeven level currently that it's still less expensive and greater, sort of, return on investment than some other options like physician employment or other similar options although we certainly do those things as well. And so, yes, the health plan continues to do that. It continues to provide us again I think a narrower network and a funnel of patients in certain markets and we'll continue to operate it with that aim.

Thanks.

Our last question will be coming from Joshua Raskin of Nephron Research. Joshua, your line is open.

Hi. Thanks. Just one more, Steve. I guess, I heard the 5% of patients are coming with exchange-based insurance. But what percentage of revenue is coming from those individual exchange patients? I'll be curious across both segments. And if you could comment on the margins of those patients relative to your other segments? And then why do you think that 5% is lower than peers? Is that network strategy and contracting? Or do you think that's geographic based?

As far as the second question, I don't really know the answer to that, Josh. As far as the first one goes, because I think commercial exchange reimbursement tends to be somewhere between Medicare and commercial, probably a little closer to Medicare. I would say I don't have this data right in front of me, but my guesstimate would be that the 5% of admissions would be something pretty close to what percentage of revenue would be because I would think that sort of midpoint between commercial and Medicare is probably about the midpoint of our reimbursement. Yes. Yes. I'm sorry, but yes.

We did get an additional question from Ryan Langston and that's Ryan Langston of TD Cowen. Your line is open, Ryan.

Thanks. Good morning. Thanks for squeezing me in. Just real quick on the new facilities that are coming online both I guess in the acute and behavioral. Can you just remind us generally how long it takes those facilities to get to breakeven? And do the geographies or any other dynamics in those markets have any changes to that maybe faster or slower? Thanks.

Yes. I would say generally the ramp of the facility to breakeven is probably in the 6-month to 12-month range, and then to what I would consider to be divisional averages probably the 18-month to 24-month range. In markets like Las Vegas, that timeframe tends to be compressed. Again, I think there's little impact this year in 2024 because the facility that we're opening in Las Vegas will be very late in the year. So I don't think it's going to have much of an impact on earnings this year. And we'll get more precise feedback on the impact of both West Henderson and the Washington D.C. facility when we give our 2025 guidance early next year.

Thanks.

Okay. And I'm showing no further questions. I would now like to turn the conference back to Steve Filton for closing remarks.

We would just like to thank everybody for their time this morning and look forward to speaking with everybody again next quarter. Thank you.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.